Wednesday, June 06, 2007

8841 TOC - A Take-under Too Far....??!?

Que lastima!! What a shame indeed!! If only the Ohtani's had been bolder and decided to take TOC "under" sooner! They certainly had ample time to do it for the stock traded under 20x forecast earnings - a 5% NET earnings yield at at time coincidental to hard-and-fast ZIRP even in its less-than advatangeous corporate form - for a solid and UNLEVERAGED real estate portfolio. Yet, investors shunned it, either too scarred from the prior bubble-shakeout, or too scared AT ANY PRICE to take the plunge amidst still-severe operating and pricing conditions I should know, for it was a cornerstone in my portfolio(s) (and those of friends sufficiently whimsical to act upon my advisement), for a solid five years, until after the current bid (By way of disclosure, I have no position - long or short - at present).

But all that was a long time ago. TOC's value has been seen by the market (long before the bid), seeing a more or less continuous run-up from its nadir at YEN 200. The Ohtani's proposed to take-out TOC out at an UNLEVERED cap rate of 3.5%, which at the time was an insultingly small premium - which was the kind evidently offered by wealthy insurance journeyman John Charman to his wife that so-infuriated her, she made sure that she hired the best lawyers to insure (no pun intended) she (and He) got their due!

But aggressive thrice-lucky Da Vinci has offered a fairer price, more in tune with market valuations, buying up 10% in the market through their sub Algarve KK . I am not an M&A deal analyst, nor am I highly conversant in the subtleties of Japanese takeover law, but it seems that whatever happens, the Ohtani's (if they want it bad enough) will have a hard time not matching DaVinci's price. While possession is proverbially said to be 9/10ths of teh law, most civilized countries DO demand fair treatment of minority investors for listed companies, and it would seem that Directors - irrespective of the vote - would have a hard time recommending their own YEN800 bid with the competing YEN1100 bid on the table. Of course, if the were NOT bidding themselves to take it over, they could argue that it is in shareholders long-term interests NOT to sell, but this avenue of judgement is not available when comparing two cash offers - one objectively inferior (by 37.50%) and one superior by the same.

The market appears to be saying something similar as well. That could be the arbs taking a flyer. Or, it could be the Ohtani's buying more to insure their majority. In any event, the YEN 800 take-under appears remote if the current market price is any reasonable judge.

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